The US economy is one of those largest world economies. Its economic growth has soared over the years especially the current years. The growth of this economy currently is being influenced by mining activities. This economy is a big importer and exporter of various goods and services and thus its trade levels are high. Initially the economy was a huge exporter of oil. However, it has greatly increased its oil production and has stopped its importation. It is producing enough to satisfy the whole economy, the economic growth of the USA economy is measured by the Bureau of Economic Analysis (BEA) on a quarterly basis (Amadeo, 2017). It is among the fastest growing economies.
GDP
Callen (2017) noted that GDP is a primary economic indicator used in defining the health of an economy. Je?drzejowicz & Nguyen (2011) defines GDP as the money value of everything produced in a country at a specific time period; providing it’s within the borders. This is irrespective of whether it’s done by a local or a foreign investors. In all economies, it is measured either in nominal or in real terms. Nominal means that price increments are included in the raw measure, whereas real means that effects of inflation are accounted for.
GDP Growth Rate
Description
It is a measure of the degree at which the economy is growing. Amadeo (2017) noted that it is reached at by comparing the economy output of one quarter by the last one. It shows the extent at which GDP has improved or shrunk (Harvey, 2012). It is driven by personal consumption, business investment, government’s spending and the net exports. Inflation rate is taken into account when the real GDP growth rate is considered (indiatimes.com, 2017). A positive GDP growth rate indicates that the economy is expanding (good health) and so the resulting effect is the expansion of businesses, personal income and jobs. If the rate is slowing down, the economy may become depressed as investors halt their investment waiting for the economy to improve. A negative GDP growth rate is an indicator that an economy is in a recession or is falling into one. In this case the economy’s GDP has contracted.
Performance trend
Graph: Real GDP growth Rate of USA for 2005 – 2014
From the graph, it can be observed that before 2007, the trend of the USA real GDP growth rate was falling. Before the 2007/09 recession, the trend of its real GDP growth rate was falling. The rate was at its lowest level in 2009 when the recession was at its critical point. The percentage change in this rate increased in 2010 and has been on average higher since then.
GDP Per Capita
Graph: Real GDP per Capita of USA for 2005 – 2014
From the graph above, the deduction to be made are that; before 2008, the trend for USA real GDP per capita was rising. A fall was experienced during the 2007/08 recession that continued until 2009. The recovery on the USA economy started in 2010 and since then its real GDP per capita has been going up. The lowest record was during the recession in 2009. The highest record was made in 2014. The trend for this changes is going up.
Comparison to another Country
Graph: Real GDP per Capita of UK for 2005 – 2014
The changes in the real GDP per Capita for the two graphs above indicates the same movement. I.e. when it was high for the USA, it was also high for the UK. Similarly, when it was low for the USA, it was also low for the UK. The trend was rising before the 2007/08 credit crunch, fell across 2009 and started rising indefinitely. The lowest level being recorded in 2009. This means that the two economies have been faced by similar economic changes. Irrespective of the similar movement, the USA economy’s real GDP per capita is very high compared to that of UK. I.e. the least level recorded for the USA economy is still greater than the maximum recorded for the UK. Although after the recession the trend of real GDP for both has been rising, the rise in that for the USA is far much greater. This explains why the USA has a rising real GDP per capital trend whereas that of the UK is falling. The latest records in the USA are greater than those made before the crisis whereas for the UK they are lower than what was recorded in the past.
Government Measures on Stimulating GDP
The growth of output can be felt when other economic indicators are performing well. The government should therefore act on improving the unemployment rate by the creation of more jobs. The achievement of this could be stimulated by increased government spending which increases investment directly creating more jobs. A tax cut could also be able to stimulate the economy since the disposable income will rise stimulating some additional demand in the economy. Labour costs is one of the most important factor that affects the production of outputs; the rising costs are raised by pressures by the labour unions. For this reason, the government’s regulation on unions could help keep the labour costs low and firms could be able to employ more labour. The result for this would be an increased production of outputs.
Types of Unemployment
The general types of unemployment are four; however, there are other types that are not so common.
The economic situations keep on varying; this effects impacts businesses. When the situations turns towards benefiting the businesses, more jobs are created (boom). On the other hand, the situation may be detrimental to the operations of businesses such that demand for goods falls (Luke, 2012). When businesses feel the squeeze, they may end up laying down some of the initially employed persons. This is the cyclical type of unemployment; results when businesses are performing poorly. This occurs mostly during a recession. However, this unemployment time is eliminated when the recovery is achieved since the businesses that had initially laid some workers are forced to take them back. In an economy, this type of unemployment has to be present from time to time.
This type is caused by the time duration taken by employers and employees to connect (before the unemployed person is accepted for employment) (Pettinger, 2012). Employers are profit maximizers and thus when making their recruitment, they make sure to recruit only those persons with the best skills. The productivity of the high skilled personnel is great. Therefore, they carry out many interview and the best are chosen. Those who fail to get the job has to wait for another job vacancy to arise. Time may be taken for employers to demand some extra employees and this explains the existence of this type of unemployment. The common group that fall under this category are the fresh graduates and even those who quit one job to look for another one. This type may be voluntary, i.e. fresh graduate only aim at getting the best paying job and thus low paying job vacancies are not something they could consider taking. Less hardships are felt by the affected compared to other types (Hall & Lieberman, 2010).
The type of unemployment resulting when businesses’ changes structurally; where jobs are available, but the unemployed do not fit in (Grimsley, 2017). The factors contributing to this is the world’s globalization and some other factor. New technologies may lead to innovations that required distinguished skills (Nickolas, 2015). A firms may therefore seek to employ the people with the required skills forcing them to layoff the less-skilled persons. This causes the less-skilled to be unemployed. It might take long before the less skilled gets another job since the skilled they held couldn’t satisfy any other job vacancy. Another factor for this type of unemployment could be increment in production costs that makes businesses to cease operation in one country and transfer their operations to a more cost-efficient economy. The initial employees may not be suitable to work in the new environment and thus they are left behind being unemployed. The economy’s automatic adjustment cannot be able to eliminate this type of unemployment. Thus the government has to intervene.
This results because some jobs arise only in specific seasons and disappear one the season is over. This is tied to weathers changes, tourist activities, etc. (Hall & Lieberman, 2010). The people who are in such job are employed as soon as the season hits but lose employment when it comes to an end. Unless these people have more skills to engage in other businesses when the season ends, they have to remain unemployed. An example of such a job is that of scooping ice from roads during the winter.
Unemployment Trend
Graph: Unemployment rate (% change) in USA for 2005 – 2014
From the graph above it can be deducted that, the USA economy’s trend of unemployment is going up. This economy had the lowest level of unemployment record before the recession. During the recession, the level went up and remained very high for some years after. However, owing to the improved economic growth, the unemployment level from 2010 – 2014 exhibited a falling trend.
Government Measures on lowering Unemployment Rate
Unemployment can be lowered by creation of more jobs in an economy. This could be through stimulating an economic growth so that businesses expand and demands more employees to fill the addition areas. Growth can only be stimulated by increasing the spending by the government and the tax cutting. The government could also ensure that the inflation rate is maintained at a higher level as long as it is contained since it has an inverse relationship with the unemployment rate. This could be by increasing supply of money or lowering the rates of interest.
Inflation Trend
Graph: Inflation rate of USA for 2005 – 2014
The USA inflation rate was at high level before the recession. The trend was falling before the recession. It eventually went to its highest level in record in 2008. The inflation rate change in the following year (2009) was the lowest in record as it was negative.
Causes of Inflation
Inflation is divided into two categories depending on the causes; (i) the demand-pull inflation resulting from an increased demand when the supply is not sufficient (Pat, 2017); (ii) the cost-push inflation resulting from an increased cost of inputs (production costs) causing the price of output to be increased (Chand, 2017).
Government Measures on Inflation
Stable price are said to be maintained when the rate of inflation is contained at the economy’s inflation range. The policy used are the tools of monetary policy; the interest rates and the money supply are varied depending on the direction the change is desired.
Conclusion
One of the conclusion drawn from this study is that the USA economy was greatly affected by the 2007/09 recession that affected many economies. However, it can also be observed that the recovery was achieved faster since the situation started improving in 2010. Many other economies achieved a recovery in 2013, and some have not yet healed completely. Although the USA economy’s real GDP has been rising, it has exhibited a falling real GDP growth rate. There some unemployment that have to exist for an economy that has healthy operations. The growth of the USA real GDP has contributed to the fall in its unemployment rate. This is an indicators that the economy is experiencing a significant level of economic growth. Despite the recovery, the impacts of the recession on the unemployment rate persisted for a long period thereafter. At very low inflation rate, the USA unemployment level was very high. This confirms the negative relationship between the two. Despite the falling trend of the inflation rate from 2010, the trend of unemployment rate is also falling. This is uncommon in many economies; since a lower unemployment rate is achieved only when the inflation rate is high.
References
Amadeo, K. (2017). The Key to Understanding What a Country Is Good at Producing. Thebalance.com. Retrieved 9 April 2017, from https://www.thebalance.com/what-is-gdp-definition-of-gross-domestic-product-3306038.
Amadeo, K. (2017). What Is the GDP Growth Rate? The Balance. Retrieved 9 April 2017, from https://www.thebalance.com/what-is-the-gdp-growth-rate-3306016.
Callen, T. (2017). Gross Domestic Product: An Economy’s all. Imf.org. Retrieved 9 April 2017, from https://www.imf.org/external/pubs/ft/fandd/basics/gdp.htm.
Chand, S. (2017). Main Causes of Inflation Derived by Economists. YourArticleLibrary.com: The Next Generation Library. Retrieved 10 April 2017, from https://www.yourarticlelibrary.com/macro-economics/inflation-macro-economics/main-causes-of-inflation-derived-by-economists/32883/.
Grimsley, S. (2017). Structural Unemployment: Definition, Causes & Examples – Video & Lesson Transcript | Study.com. Study.com. Retrieved 10 April 2017, from https://study.com/academy/lesson/structural-unemployment-definition-causes-examples.html.
Hall, E., & Lieberman, M. (2010). Economics: Principles & applications. Mason, OH: South-Western Cengage Learning.
Harvey, C. (2012). Economic growth rate. TheFreeDictionary.com. Retrieved 9 April 2017, from https://financial-dictionary.thefreedictionary.com/GDP+Growth+Rate
Indiatimes.com. (2017). Definition of ‘Real Economic Growth Rate’ – The Economic Times. The Economic Times. Retrieved 9 April 2017, from https://economictimes.indiatimes.com/definition/real-economic-growth-rate.
Je?drzejowicz, P., & Nguyen, N. (2011). Computational collective intelligence (1st Ed.). New York: Springer-Verlag.
Luke, J. (2012). Types (Causes) of Unemployment. EconProph. Retrieved 10 April 2017, from https://econproph.com/2011/02/19/types-causes-of-unemployment/.
Nickolas, S. (2015). What are some causes of structural unemployment? Investopedia. Retrieved 10 April 2017, from https://www.investopedia.com/ask/answers/050115/what-are-some-causes-structural-unemployment.asp.
Pat, S. (2017). What Is Inflation Definition – Causes of Inflation Rate and Effects. Moneycrashers.com. Retrieved 10 April 2017, from https://www.moneycrashers.com/what-is-inflation-definition-causes-inflation-rate/.
Pettinger, T. (2012). Frictional Unemployment. Economicshelp.org. Retrieved 10 April 2017, from https://www.economicshelp.org/blog/glossary/frictional-unemployment/.
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